Y our name For full partial credit please show all of your work 1. 3 points) Your firm is considering issuing one-year debt, and has come up with the following estimates of the value of the interest tax shield and the probability of distress for different levels of debt. Which level of debt is optimal if, in the event of distress, the firm will have distress costs equal to 3 million? Use table below to complete your computations 50 60 70 Debt PV of Interest Tax Shield Probability of Distress Distress Cost PV of Distress Cost Expected PV of Distress Costs Gain 90 0 0.7 0.76 0.91.151.271.3 1% 2% 7% 16% 31% 40 2. (2 points) On May 14, 2008, General Motors paid a dividend of S0.25 per share. During the same GM lost a staggering $15.5 billion or $27.33 per share. Seven months later the company asked for billions of dollars of government aid and ultimately declared bankruptcy just over a year later, on June l 2009. At that point a share of GM was worth only a little more than a dollar a) If you exclude possibility of government bailout, how would you explain the decision to pay the dividend? b) How would you explain the decision to pay the dividend if GM executives anticipated that there was a possibility of a government bailout should the firm be forced to declare bankruptcy